January 29, 2006
On For-Profit Colleges Again-BECKER
A set of varied comments, with some interesting and insightful. I have a few reactions.
Some of you questioned whether for-profit colleges provide a useful education. The only decisive way to get at this is to calculate how much earnings increased as a result of attending for-profit colleges, and then compare that to the cost of attending them in order to estimate rates of return on this investment. Rates of return estimates can also take into account that relatively many individuals who attended commercial colleges default on government-backed loans. Thousands of rate of return calculations have been made for traditional public and private non-profit colleges and universities, but I am not familiar with any for commercial colleges (that does not mean there are no such estimates; only that there are not many).
I do not believe signaling is an important factor in explaining returns to higher education in general, or to commercial colleges in particular. The signaling interpretation of the benefits of going to college originated in the 1970's and had a run of a couple of decades, but is seldom mentioned any longer. I believe it declined because economists began to realize that companies rather quickly discover the productivity of employees who went to college, whether a Harvard or a University of Phoenix. Before long, their pay adjusts to their productivity rather than to their education credentials. I agree with one of the comments that such credentialism is more likely to survive among public sector employees.
The federal government already punishes proprietary colleges and others whose graduates have high default rates on their loans. As I understand the procedure, if default rates get above a certain level, students at these schools have trouble getting loans. Of course, that makes it much more difficult to attract students.
Studies do show that retraining of adults over age 40 generally produce very little in the way of higher earnings. But for-profit colleges mainly enroll students in the twenties and thirties, not much older than that.
Someone asked why States like New York oppose for-profit colleges? As someone pointed out, the University of Phoenix had to fight hard to get accredited in many states, and is still denied the opportunity to enroll student In New York and about fifteen other states. I suggested in my post that the answer is opposition from public and private non-profit colleges that do not want the competition. It is common for companies in many industries to restrict the entry of competitors if they can. Why should traditional colleges be any different? They only express their opposition in more high-falutin and self-righteous language.
Posted by Gary Becker at 12:40 PM | Comments (2) | TrackBack (0)
Trackback Pings
TrackBack URL for this entry:
http://www.lessig.org/cgi-bin/mt/mt-tb.cgi/1109
Comments
"It is common for companies in many industries to restrict the entry of competitors if they can. Why should traditional colleges be any different? They only express their opposition in more high-falutin and self-righteous language."
Gary I completely agree. We must introduce more competition into our system of education. Easier said than done however.
Thanks for a good article.
Posted by scalpmed at January 29, 2006 12:52 PM | direct link
I am surprised that you are dismissive of signaling, since it is gospel at the graduate schools I've attended. So if I may play devil's advocate: first, if signaling is unimportant, why the increase in tuition prices in excess of inflation over the last fifteen years or so? Why isn't there a substitute for credentialism that would take advantage of this apparent arbitrage opportunity, and thus place downward pressure on tuition prices? Second, although productivity can be assessed via internships, what sorting mechanism will determine who gets the internships? Third, it's hard to assess individual productivity in many instances where people work as teams or in the corporate environment in general. Fourth, firms are unwilling to train workers because of raiding, thus putting the onus of acquiring training on the worker.
A degree, or the completion of at least some coursework, is a signal of one being assessed as competent in a body of knowledge. It seems that one's credential is very important in landing one's first job, and often people are able to prove themselves on the job henceforth. However, job changes, career changes, or desired new responsibilities may require a new credential, or the utilization of an older one.
Posted by Steve at January 29, 2006 10:39 PM | direct link
